Peeling the Onion: How to reduce uncertainty on your business idea
Exploring new business ideas is like peeling an onion: there are layers of uncertainty, and each step in experimentation reveals more about what works and what doesn’t. This article is about how trying things out — like peeling an onion — helps businesses figure out their path forward.
In the realm of startups, validation isn’t just about believing in your idea; it’s about rigorously testing assumptions, gathering data, and iterating to refine your concept. This article delves into an experimentation framework tailored for startups, offering a roadmap to validate ideas effectively, mitigate risks, and pave the way toward a successful launch.
In one year work and across 6 startups we incepted, we’ve embraced Gagan Biyani’s insights, advocating for the Minimum Viable Testing Process. Aligned with Lean Startup principles, this method focuses on essential tests, bypassing unnecessary complexities that hinder progress.
To kick off new ideas, design sprints are our go-to method. We run them with a cross-functional team, including subject matter experts, builders and product people. We dive deep to uncover hidden insights, aiming to generate robust ideas that merit further exploration.
Following this, we select our most promising idea and tackle the inevitable groundwork: comprehending the problem, mapping stakeholders and their value mix and crafting a compelling value proposition. All culminating in the assembly of our Lean Business Model.
It’s only now that we are ready to dive into experimentation! We focus on listing, prioritizing, and validating the assumptions underpinning our Business Model. Employing selected experimentation patterns, we seek to bolster our confidence in these assumptions before proceeding further to scope an MVP and put serious product effort in.
Step 1: Write down your assumptions&hypothesis
Allocate 20 minutes to assess the fundamental assumptions forming the basis of your model regarding the following areas:
- Problem (is your problem worth solving?)
- Product (does your product/service solve the problem?)
- Market (is it something a relevant amount of people want?)
- Willingness to Pay (will people reach into their pockets for it?)
Problem: E.g. ask yourself, “What Assumption are we taking regarding the problem?”. Imagine your idea is to provide aftercare for fashion products then an assumption could be “We believe that customers of high fashion products are not happy with the aftercare they get from brands currently” or “We believe that brands will be willing to outsource the operational execution” or “We belief that with every product repaired, we contribute to reducing CO2 output”.
Product: Ask yourself the same question but for your product idea. “We believe that the product needs three key features: x, y and z.” or “We believe a service can be built to automate the recognition of serviceable damages, what services to build and generate an automated quote.”
Market and Willingness to Pay: Similarly, develop assumptions such as: “We assume that brands actively invest in circular economy solutions, extending product usage.” or “We assume that the market size and growth facilitate successful fundraising.” Regarding willingness to pay, consider: “We assume that cobblers’ unit order economics maintain a margin of 50–70%, replicable in the long term.” or “We assume that customers are willing to pay up to 20% of the original price for repairs.”
As a result, you should have 4–5 beliefs for each area. Use a Miro Board or Post-Its on an A3 to do this job.
Step 2: Prioritization of the assumptions
Design a quadrant calling your one axis “Have Evidence” and “No Evidence” and the other one “Important” and “Not important”.
Take your post-its from above and place them as appropriate. Ask yourself, “Do I already have evidence that this belief is true?” and “How important for my business model is it that this belief is true?”.
You get something like this, enabling you to understand the assumptions you need to work on clearly. It’s the ones in the upper right corner. They form your set of critical assumptions.
Another important quadrant is the assumptions that are both “Important” and “Have Evidence”. Make sure you detail them out: “What’s the evidence you have?”, “Which expert did you talk to to get it?”. Add some metrics to the evidence to quantify the proof you have.
Exploring new business ideas is like peeling an onion. There are layers of uncertainty, and each step in experimentation reveals more about what works and what doesn’t. This article is about how trying things out — like peeling an onion — helps businesses figure out their path forward.
How do you ensure your concept holds promise before investing time and resources? This challenge is where an experimentation framework becomes invaluable. In the realm of startups, validation isn’t just about believing in your idea; it’s about rigorously testing assumptions, gathering data, and iterating to refine your concept. This comprehensive guide will delve into an experimentation framework tailored for startups, offering a roadmap to validate ideas effectively, mitigate risks, and pave the way toward a successful launch.
Step 3: Pick the experimentation pattern to win evidence on the critical assumptions.
There is a variety of experiments to run to win evidence on them. Find an extensive list here.
Based on the core area of your assumption (Problem, Product, Market, Willingness to Pay), you choose different experimentation patterns, making sure that you:
- Go cheap and fast early on in your journey.
- Increase the strength of evidence with multiple experiments for the same hypothesis.
- Given your constraints, always pick the experiment that produces the most substantial evidence.
- Reduce uncertainty as much as you can before you build anything.
Each experiment should be defined by summarizing the belief, wording out what you will verify with the experiment, defining the KPIs that will allow you to measure success, and finally, what drives the outcome so that you can finally mark your assumption as true. Here is an example:
Step 4: Kick off, measure and repeat
Now, you have your list of experiments to run in the next couple of weeks. Do them, but do them seriously. Make sure each week you compile for yourself a report on the result, detailing:
- what you observed
- what did you learn from that
- what you will, therefore, do next
Also, update your KPI Metrics. Once your metrics reach the level you defined as evidence, you can stop it. You have learned a lot from the assumption you tested, and your solution scoping of the MVP will benefit from this.
Summing it up:
Experimentation is key in your idea validation in order to
- go low-investment and fast early on in your journey.
- increase the strength of evidence with multiple experiments for the same hypothesis
- always pick the experiment that produce strongest evidence, given your constraints.
- reduce uncertainty as much as you can before you build anything.
If you want to dive deeper into a discussion or want access to our MIRO template to run experimentation, let’s get in touch: oliver@startupgym.it!
